The Neglected Part of Retirement Planning

Medical expenses and long-term care costs are the wild card in all retirement plans. Most people don’t plan well for them. Even those who use financial advisors arent’ doing a good job of planning for medical expenses, according to a  new survey by Nationwide Financial. We discussed in Retirement Watch many times the importance of factoring medical expenses into a retirement plan and recommended a number of strategies to consider. We also present hard data readers can use to make reasonable estimates of their costs. Since medical expenses for an individual are difficult to forecast, it’s important to have a cushion in the plan in case expenses are much higher than estimated. Unfortunately, not many people even understand how much they’re currently paying for medical expenses, much less how much they’re likely to pay as retirement goes on.

Nearly three fourths of advisors say their clients do not realize how crucial it is to plan for health care costs in retirement and, on average, more than half of the clients do not have a plan to pay for those costs, Nationwide says.

Retirees today face what may seem to be insurmountable challenges in paying for their future out-of-pocket health care costs, the survey says. Our-of-pocket health care costs for the average 65-year-old couple can reach $240,000 over 20 years, plus the cost of long-term care.

“Currently many advisors will use their clients’ assumptions of their future health care costs to develop a retirement income plan,” says Kevin McGarry, Nationwide Financials’ director of retirement income strategies. “However, four in five clients underestimate their health care costs.”